The US is set to compensate European songwriters and composers for millions of pounds worth of lost revenue.

The musicians have won their fight against a US law which let bars and grills avoid paying royalties for playing their music on TV or radio.

Music groups have estimated royalty losses at $27m (£19m) a year.

British Music Rights, which represent British music publishers and songwriters, has estimated the UK loss in revenue at £4.5m.

We have started a constructive dialogue with a view to compensating European musicians

Pascal Lamy, EU Trade Commissioner

The World Trade Organisation (WTO) last year declared the loophole in breach of international copyright law.

On Tuesday the WTO agreed to postpone a deadline for the US to comply with its ruling so discussions between the EU and US could continue.

Europe and the US are now to explore how to compensate Europe's songwriters.

EU Trade Commissioner Pascal Lamy said: "Instead of adopting a confrontational approach, we have started a constructive dialogue with a view to compensating European musicians until such time as the U.S. Copyright Act is amended."

The two sides now have until the end of the current session of the US Congress to reach a deal, Lamy said.

Independent arbitrators will determine the exact amount of compensation.

British Music Rights' director-general Frances Lowe told BBC News Online: "It's positive that there is now a dialogue - but the next step is to decide the level of compensation, and how it would be distributed."

The Sonny Bono Copyright Term Extension Act and the Fairness in Music Licensing Act of 1998 extended the US term of copyright to bring it in line with international norms.

But European music organisations took exception to what became called the "bars and grills" amendment, attached to the legislation after pressure from American restaurant and bar owners.